Why It Matters That Your Lab Has Low Test Prices

Why It Matters That Your Lab Has Low Test Prices

TODAY, THE LAB INDUSTRY FACES A CONTRADICTION when setting prices for individual lab tests. At one extreme, a certain sector of labs seeking to win exclusive managed care contracts sets high-volume routine test prices at or below the fully-loaded cost to perform those tests. At another extreme, laboratory companies with specialty molecular and genetic tests price their tests at multiple thousands of dollars.

Both types of pricing strategies are destructive to the financial health of the clinical laboratory industry. As these pages have chronicled over the past 22 years, loss-leader pricing by a handful of large lab companies to win exclusive network status and exclude competing labs from access to those networks accelerates the ability of private payers to cut prices for all labs. This decades-long process will culminate on January 1, 2018, when the federal Centers for Medicare and Medicaid Services will reduce Medicare Part B clinical lab test fees substantially using the market price data under the Protecting Access to Medicare Act (PAMA). That data consists mainly of deeply-discounted prices private health insurers pay to the largest labs.

At the other extreme are the high prices many specialty lab companies charge. Sometimes the motive of specialty labs is to charge high prices with the knowledge that private insurers will not reimburse for all claims. Other times, the high prices are part of abusive marketing schemes where such lab companies may be inducing physicians for lab referrals and want high prices. This latter strategy maximizes whatever reimbursement the labs may get from health insurers while allowing these labs to pursue unlucky patients for the balance of the amount owed, or the full amount if the claim was denied.

Sitting in the middle of these two lab test pricing extremes is a handful of lab companies whose executives understand the classic economics of price and quality versus supply and demand. Seeing that health insurers resist issuing favorable coverage and payment decisions for proprietary molecular and genetic tests, these companies are pricing their tests at levels that can be described as patient- and payer-friendly.

You will read about one of these companies in this issue. Color, of Burlingame, Calif., set the price of its 30-gene test panel at $249 for cash-paying customers. That attractive price is one reason the lab company is now an in-network lab provider for more than 100 million Americans.

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